When preparing an amortization schedule, the monthly interest is equal to principal times rate divided by time

Finance Nov 24, 2020

When preparing an amortization schedule, the monthly interest is equal to principal times rate divided by time.

True or False?

Expert Solution

False

Formula for calculating monthly interest payment in amortised loans is given as:

P= (r*PV)/(1-(1+r)^-n); where P is monthly payment, r is interest rate per period, PV is loan amount and n is number of periods.

From the calculated monthly payment, monthly interest is outstanding principal times rate divided by time. The Outstanding Principal changes every month, as some portion of the monthly payment goes towards repayment of principal.

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